...Rogue Trader How many times can you go double or nothing before you wind up a billion pounds in debt? In “Rogue Trader”, a film based on the life on Nick Leeson, we get a glimpse into this real world dilemma. The drama begins with Leeson’s promotion to general manager of Barings Futures Singapore. As general manager, he faces a personal quandary and must decide whether to cover for a friend and coworker who made an honest mistake (one that resulted in the loss of a substantial amount of money) or to turn the same person in to face termination. Leeson chooses loyalty to his friend over loyalty to the bank, and covers up the losses by creating an error account. This account served to hide said losses while Leeson tried to make back the money that was lost. After experiencing additional losses, Leeson hit a lucky streak and was able to make up the money due to market growth. However, the profound effects of making so much money in the market quickly got to his head. Riding on the coattails of this success, coupled with other catalytic factors that created another loss, he was once again put in the same position to make up lost dollars in the market. From this point on, we see Leeson gamble on the market, doubling down and hiding his losses from everyone around him until his debt becomes insurmountable. Based on Leeson’s actions, the two COSO components most violated are risk assessment and control activities, of which many examples can be seen throughout the movie. Risk Assessment...
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...Rogue Trader: postmortem You recently graduated and just started employment at the New York office of one of the Big Four accounting firms. Your first week at the firm included presentations on the organization of the firm, as well as firm policies and procedures. Tomorrow morning, you begin a two-week training program on internal controls and you have a whole binder of information that you must read in preparation for the exercises and role-playing that are included in the training. You recognize most of the materials in the binder because you studied them in your ACC 409/609 class: The Committee of Sponsoring Organizations Report, Internal Control—Integrated Framework. You also notice that there are several cases addressing internal control issues. One case is the Barings Bank collapse and there is a video of this case that you and the other staff auditors will view as part of the training. You want to be prepared for the discussions during the training sessions, so you conduct some research on these topics, especially Barings Bank, because you are not familiar with that case. The COSO Framework You search the COSO website and find the 2013 Internal Control—Integrated Framework that outlines five essential components of any internal control system: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring. This updated version of the Framework introduces 17 principles associated with the five...
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...Rogue Trader COSO Control Questionnaire Control Environment: 1). The possibility of Nick Leeson being able to defraud Barings can be explained by the lack of management supervision. Since Leeson was making a lot of money for the company, senior executives didn’t punish him. Here are three examples of this: * The funding kept coming even after company realized that Singapore law had funding restrictions * Senior Executives didn’t punish Leeson for the violations he had committed * After Leeson was arrested, management didn’t seek any ways to comment on his actions. 2). Barings bank was more concerned with the bottom line profits rather than compliance with the code of conduct. The film didn’t exactly show if Barings had a code of conduct for its employees. However, it is reasonable to assume that there was one. Nevertheless, senior executives allowed key employees, who were generating sufficient profits for the company, the freedom of actions. 3). The performance and incentive compensation targets portrayed in the movie were unreasonable and unrealistic. For instance, Leeson got a call in the middle of the night from the Head of the Barings Financial Products Group in London, Ron Baker, telling Leeson that he has to generate another two million pounds next month to secure their bonuses. Such unrealistic goals provoked Leeson to manipulate incentive compensation plan results by hiding losses in an account 88888 to make various transactions look profitable. 4)...
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...Rogue Trader Name(s) ___________________________ Accounting information systems ____________________________ I understand that this exam is to be completed by myself or in a team of two and that any assistance received from other students or any unauthorized source is cheating and subject to the appropriate disciplinary action as deemed by the Office of the Dean of Albers School of Business and Economics. I (we) am aware of the exam policies / rules provided and agree to abide by them. _____________________________________ Student's Signature – Date _____________________________________ Student's Signature – Date Important: Make sure you read all the way through this assignment. Information regarding grading is included in the assignment instructions. “ROGUE TRADER” You are a new graduate, and you just got the job of a lifetime at the New York office of one of the big accounting firms. Yesterday, the managing partner, Connie Rise, set up an appointment for you to meet with her today. “Good morning,” she says, as you wonder what you have done to be summoned to her office at 8 a.m. You are still reeling from relocating to New York and working in this fast-paced environment. Here you are, plucked from a small city located among wine farms and rolling hills on the central coast of California and plunged right into the thick of things in New York City. But you love your new environment. You earn a great salary, pay exorbitant rent for...
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...iolations Short Essay The movie, Rogue Trader, narrates the true story of a man named Nick Leeson. He brought the Barings Bank down, which was one of the most venerable financial institutions in England. Nick Leeson was played.. iolations Short Essay The movie, Rogue Trader, narrates the true story of a man named Nick Leeson. He brought the Barings Bank down, which was one of the most venerable iolations Short Essay The movie, Rogue Trader, narrates the true story of a man named Nick Leeson. He brought the Barings Bank down, which was one of the most venerable financial institutions in England. Nick Leeson was played.. iolations Short Essay The movie, Rogue Trader, narrates the true story of a man named Nick Leeson. He brought the Barings Bank down, which was one of the most venerable financial institutions in England. Nick Leeson was played.. iolations Short Essay The movie, Rogue Trader, narrates the true story of a man named Nick Leeson. He brought the Barings Bank down, which was one of the most venerable financial institutions in England. Nick Leeson was played.. iolations Short Essay The movie, Rogue Trader, narrates the true story of a man named Nick Leeson. He brought the Barings Bank down, which was one of the most venerable financial institutions in England. Nick Leeson was played.. iolations Short Essay The movie, Rogue Trader, narrates the true story of a man named Nick Leeson. He brought the Barings Bank down, which was one of the most venerable financial institutions...
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...Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank By Sam Bhugaloo Page 1 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Table of Content Introduction.................................................................................................................................3 Background and Overview… ......................................................................………… ........ .....4 Barings Bank...............................................................................................................................5 Internal Controls at Barings Bank.............................................................................................13 Lessons Learned and Steps Taken to Preclude Recurrences . ..................................................15 Conclusion ................................................................................................................................18 References.................................................................................................................................20 Page 2 of 21 Commodities Trading: Nick Leeson, Internal Controls and...
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... 1. Traders often lose because they don’t know why they trade 2. Trading as zero-sum game – combined gains and losses = 0; if you buy & gain, seller missed opportunity to reap that same gain a. Futures b. Stocks 3. Types of traders a. Utilitarian traders- seek a benefit aside from trading profits i. Investors & borrowers – move money from one time period to another. Investors move it from present to the future. Borrowers move it from the future to the present. A very small portion of all trading – less than 1% of stock trading is for investment or borrowing, estimates Harris. & corps sell bonds to get money now, while investors buy bonds to move money to the future ii. Asset exchangers – trade an asset they possess for another asset of greater value to them 1. All currency trades, e.g. dollars for yen are asset exchanges 2. All spot commodity trades, also iii. Hedgers – want to reduce their exposure to various price risks (and occasionally to quantity risks) 1. Eg using stock index contracts 2. Using Eurodollars to convert from fixed to floating or floating to fixed iv. Gamblers (entertainment) 1. Different from speculators v. Fledgings – learning to trade vi. Tax avoiders b. Profit motivated traders i. Specualtors 1. Informed traders 2. Parasitic traders a. Order anticipators i. Front runners ii. Sentiment oriented technical traders b...
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...exchange, it was a low risk strategy meant to make small profits. Where Leeson went astray was when he began unauthorized speculation in futures on Nikkei 225 stock index and Japanese government bonds. These trades where highly risky due to the fact that they involved a highly leveraged strategy and depended solely on the markets movement upwards. This strategy is a double edged sword because even though it provided devastating results for Leeson it could of also provided incredible gains if the market would have gone up. Leeson essentially bet that the Nikkei was going to rise. Once the loses started coming in Leeson opened up a secret trading account, account 88888. The account was initially set up to cover a mistake done by one Leeson’s traders in which she mistakenly submitted a purchase order instead of a sell order. Leeson traded his way out of her mistake but found himself in the red once again due to his strategy and bullish sentiment on the Nikkei. As 1995 came along Leeson’s approach remained the same, on January 17th 1995 a 7.2 earthquake hit the Japanese city of Kobe, causing the Nikkei to plummet, one would think this would change Leeson’s approach but his loses where...
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...Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank By Sam Bhugaloo Page 1 of 21 Commodities Trading: Nick Leeson, Internal Controls and the Collapse of Barings Bank __________________________________________________________________________________________ Table of Content Introduction.................................................................................................................................3 Background and Overview… ......................................................................………… ........ .....4 Barings Bank...............................................................................................................................5 Internal Controls at Barings Bank.............................................................................................13 Lessons Learned and Steps Taken to Preclude Recurrences . ..................................................15 Conclusion ................................................................................................................................18 References.................................................................................................................................20 Page 2 of 21 Commodities Trading: Nick Leeson, Internal Controls and...
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...ARUCAN, PEARLNETTE GAY JUNE V. MANAGEMENT ADVISORY SERVICES MWF 1:30-3:30 ROBERT KIYOSAKI Who is Robert Kiyosaki? A fourth-generation Japanese American, Kiyosaki was born and raised in Hilo, Hawaii. After graduating from Hilo High School, he attended the U.S. Merchant Marine Academy in New York, graduating with the class of 1969 as a deck officer. He is an investor, businessman, self-help author, motivational speaker, financial literacy activist, and occasional financial commentator. Kiyosaki is perhaps best known for his Rich Dad Poor Dad series of motivational books. As a devout global financial literacy advocate, Kiyosaki has been a staunch proponent ofentrepreneurship, business education, investing, and that comprehensive financial literacyconcepts should be taught in schools around the world. Why did he filed for bankruptcy? Robert Kiyosaki filed for corporate bankruptcy through one of his companies, Rich Global LLC. Rich Global LLC filed for Chapter 7 bankruptcy protection on Aug. 20 in a Wyoming bankruptcy court. Kiyosaki and his bankruptcy attorney did not immediately respond to requests for comment. The company had been weighed down by a lawsuit filed by Learning Annex, one of Kiyosaki's earliest backers who had helped arrange his public speaking events earlier on. Bill Zanker, the founder and president of Learning Annex, sued Kiyosaki after he allegedly failed to pay a percentage of profits from his speaking engagements. A district judge in New York...
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...Rogue Trader: Nicholas Leeson Case Agajanova Kristina Aivazova Marina Skhuluhia Irakli Davlianidze Aleksandre 1. Nicholas Leeson’s strategy on the market was simple, he simply thought about rising of the Nikkei 225 indexes all the time, he was playing on long position with, also he was playing short on Japanese gov. bonds, he used tactics of diversification of his investments. But, almost every trade ended up with a failure to him, because indexes were sharply decreasing during the second half of 80th and first half of 90th. 2. All Nicholas’ estimations were wrong, he almost all the time was betting that indexes will rise in the future and he was going va banque. 3. He knew, that “88888” account isn’t considered in London and he could use it to hide his failures. But, in the SIMEX, he couldn’t hide it, but why don’t use it as a costumer’s account, which is not tracked as seriously as corporate one!? 4. First of all, is that the firm gave him carte blanche in controlling both, front and back offices, he managed to hide his fails and “88888” error account. Another thing what helped him, was that he used all his losses, which were not withdrawn by the winners in his previous trades (the specific of Japanese futures market) because, there was no must to withdraw gains. So, it created an illusion of the profit existence for the company he worked for and didn’t make any clue to force auditors go deeply to all his frauds. 5. As it was said above, in...
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...Analisis financiero Rogue Trader. Nick Leeson entró a formar parte de la leyenda negra del mundo de las finanzas el jueves 23 de febrero de 1995 a las cinco de la tarde. En aquel preciso instante, a dos días de cumplir los 28 años, Leeson, un joven operador de bolsa británico, de origen humilde, encumbrado por sus superiores a la categoría de dios de las finanzas de la noche a la mañana, provocó la sonada quiebra de una de las más venerables instituciones financieras de Reino Unido, la banca Barings, con 223 años de historia a sus espaldas. La banca Barings, la misma que financió la compra de Luisiana por Estados Unidos, la que puso el dinero para la construcción del ferrocarril en la ruta de la seda, la que fue descrita por el cardenal Richelieu como la sexta potencia del mundo y que ayudó en la reparación de Francia tras Waterloo, terminó finalmente vendida por una libra al grupo holandés de servicios financieros Internationale Nederlanden Groep (ING), que prometió hacerse cargo de todas las deudas, devolver los depósitos y encargarse de los acreedores. Barings, todo un emblema del establishment británico, con clientes como Napoleón III o la mismísima reina de Inglaterra -quien al parecer perdió más de un millón de dólares tras la bancarrota-, estaba, para sorpresa de muchos, en las manos de un especulador de 28 años, que suspendió su examen de matemáticas para ingresar en la Universidad, y que dejó un agujero irreparable de 827 millones de libras (1.400 millones de dólares)...
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...Final Report on Case Analysis: “The Barings collapse: breakdowns in organizational culture and management” Prepared by: Valeriya Yun ID: 201005032 SolBridge International School of Business, 2012 Introduction How it is possible that one person became an important reason for the world-known financial institution collapse? But it is, and this guy is Nick Leeson who brought the Barings bank to bankruptcy with losses of $1.4 billion, even though here he played an antihero role we cannot deny his talent. This paper provides an analysis of the case, introduction of the whole picture depicted in the case, Nick Leeson activities and operations, and of course assessment of internal control and some other problems in their structure which also influenced the bank collapse. An analysis is followed by conclusion and final recommendations. Barings Bank overview Barings Bank was founded in 1762 and in the beginning of the 1980s still had a reputation as one of the oldest in England and world’s most pre-eminent financial institutions. During their long history they have already been on the edge but that time they were saved by the Bank of England. But in 1995 as a result of Nick Leeson activities, the Barings Bank collapsed. In 1980s there was a vogue to buy or acquire stockbroking and jobbing firms and Barings Bank followed the tendency and bought Henderson Crosthwaite and built up the significant business BSL which had an operational independence of Barings Brothers &...
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...close the deal only in the upcoming Monday. Because of a busy day on Monday, Mr. Leeson forgot and now this was a problem that could affect not only the clerk but also him. So, he decided to hide this error permanently in an account 88888, but after some days this error could cost the firm 60,000 Pounds so this became a very serious problem that could cause Mr. Lesson troubles with his position in the company and also affect his bonuses (which until now were really high). So he decided to hide this error, and lots of others made by him or his team, which they reached the loss of almost 1 billion dollars. Why did Mr. Leeson behave that way? While reading the case, you can understand that one of Mr. Leeson’s ambitions was to become a floor trader. When he was sent to Singapore, his position was to control both settlement and floor operations and this was not a common practice for Bearings. This way he could control the firm’s operations and also in the same time work in the back office, which gave him a lot of freedom and nobody could control his actions easily. Sometimes the work was very loaded, which made it impossible to control everything in time and correctly. On the other hand, I have to admit that it was not all the time Mr. Leeson fault for some things, because Bearings bank was saving money by employing one manager instead of two separate individuals to do the two...
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...Case study- The Collapse of Barings Bank 1. What was Nick Leeson’s strategy to earn trading profits on derivatives? The play here was very simple – trading futures on the Nikkei 225 as the underlying. The Nikkei 225 was traded as a future on both the SIMEX and the Osaka markets. There were always known to be differences between the two markets which could be arbitraged. The idea was to exploit the differences between the 2 markets , and execute in the cheaper market on client orders. This would then allow Barings to net a profit as they execute in the cheaper market but quote the client the price in the more expensive market. The underlying idea was of course to always be long one and short the other. Leeson was long Nikkei 225 futures, short Japanese government bond futures, and short both put and call options on the Nikkei Index. He was betting that the Nikkei index would rise, but instead, it fell, causing him to lose $1.39 billion. 2. What went wrong that caused his strategy to fail? Nick Leeson’s strategy failed because the Nikkei 225 index kept falling while he continued to bet that it would rise. On the 17th of January 1995 a huge earthquake struck Kobe in Japan. The Nikkei plummeted putting Leeson’s positions under a lot of stress. The Nikkei plunged to 17950 by the end of that week and Leeson started recording big losses. Leeson’s solution was however to ask for extra funds from London to meet his margin calls and continue trading. His view was that the move down...
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